STOCK 


PECULATION. 


Entered  according  to  Act  of  Congress  in  the  year  1875,  by  L.  W.  Hamilton  & Co.,  in  the 
Office  of  the  J rarian  of  Congress,  at  Washington. 


INTRODUCTORY. 


The  main  feainres  of  Stock  Speculation  are  familiar  to  all  frequenters 
01  Wall  Street,  but  for  the  benefit  of  those  who  have  not  had  an  oppor-  | 
tunity  to  observe  the  methods  of  business  at  the  Stock  Exchange,  we  | 
have  compiled  a brief  outline  of  the  principal  points  of  such  operations, 
which  will  be  found  of  great  assistance  to  those  seeking  information  on 
this  subject. 

The  value  of  clearness,  fullness,  and  accuracy  of  expression,  in  any- 
thing written  for  the  purpose  of  conveying  information  about  Wall 
Street  aflfairs,  to  persons  who  have  no  practical  acquaintance  with  them, 
is  best  appreciated  by  those  who  have  vainly  attempted  to  get  some 
definite  ideas  out  of  the  ordinary  articles  and  publications  relating  to 
this  subject.  The  writers,  having  themselves  been  long  familiar  with 
the  financial  world,  forget  that  many  of  their  readers  have  little  knowl-  j : 
edge  of  its  language,  or  its  ways,  and  consequently  fail  to  express  1 
themselves  in  such  a manner  as  to  be  generally  understood. 

In  fact,  it  requires  no  ordinary  degree  of  skill  and  care  to  give  to 
persons  who  have  had  no  experience  in  Wall  Street,  a clear  and  com- 
plete view  of  the  way  in  which  business  is  transacted  there. 

Even  publications  designed  for  this  express  purpose,  often  entirely 
fail  of  its  accomplishment.  Yet,  from  articles  properly  adapted  to  this  ! 
purpose,  any  person  of  ordinary  intelligence  can  easily  acquire  correct 
ideas,  not  only  of  the  customs  of  the  Street,  and  the  routine  of  the  Stock 
Exchange,  but  of  the  causes  which  influence  prices  and  determine  the 
great  fluctuations  of  the  market.  ; 

No  one  should  suppose,  however,  that  a novico  in  these  matters  can  ■ 
read  financial  articles  as  carelessly  and  hastily  as  general  news,  and  at 
the  same  time  fully  understand’ them.  The  subject  requires  some  care  ; 
on  the  part  of  the  reader,  and  it  is  worth  all  that  it  requires.  It  never  I 
lacks  interest  to  those  who  have  become  familiar  with  it,  and  it  often  I 
proves  to  be  of  the  greatest  practical  value.  A careful  perusal  of  these 
pages  cannot  fail  to  interest  and  instruct  all  persons  desirous  of  be-  | 
coming  familiar  with  the  great  subject  of  Stock  Speculation.  ‘ 

L.  W.  HAMILTON  & CO.  > 


3: 


L.  W.  HAMILTON  & CO.,  STOCK  BROKERS, 


q The  New  York  Stock  Exchange. 

The  large  and  beautiful  building  in  which  the  brokers  of  Wall 
Street  daily  assemble,  and  which  is  known  as  the  Stock  Exchange,  is 
the  centre  of  some  of  the  most  important  influences  which  affect  the 
financial  and  mercantile  affairs  of  the  country.  The  echoes  of  the 
bids  and  offers  that  are  daily  shouted  in  its  halls,  are  heard  in  every 
city  and  town  in  the  Union  ; and  many  a resident  from  Maine  to  Cali- 
fornia waits  eagerly  for  the  telegraph  to  inform  him  of  the  profits  or 
the  losses  which  each  day  shows  him,  in  his  transactions  in  stocks. 
Even  on  the  other  side  of  the  Atlantic,  many  a wealthy  investor  is  oc- 
cupied in  watching  the  dealings  at  the  New  York  Stock  Exchange  as 
daily  reported  by  the  cable ; and  the  aggregate  gains  or  losses  that  are 
often  made  in  one  hour  within  the  walls  of  that  famous  structure,  would 
be  sufficient  to  make  a poor  man  a prince  or  to  reduce  a prince  to  beg- 
gary. 

The  Stock  Exchange  is  a costly  building,  having  two  handsome 
fronts,  one  on  Wall  Street  and  the  other  on  Broad  Street.  There  is 
also  a third  entrance  on  New  Street.  The  most  interesting  parts  of  the 
building  are,  perhaps,  the  spacious  and  elegant  Hall  in  which  the 
brokers  daily  assemble,  and  the  vaults  beneath  it,  where  are  deposited 
the  vast  amount  of  Bonds  and  Stocks  dealt  in  at  the  Exchange.  The 
number  of  members  of  the  Stock  Exchange  is  over  eleven  hundred, 
but  all  are  not  actively  engaged  in  business.  The  value  of  a members 
seat  is  between  five  and  six  thousand  dollars. 

The  Stock  Exchange,  with  its  enormous  daily  transactions,  affords  to 
institutions  and  private  investors  a regular  market  for  buying  and  sell- 
ing securities.  It  gives  at  all  times  to  their  bonds  and  stocks  a definite 
price,  at  which  they  can  be  turned  into  money  at  a moments  notice  j 
everydays  newspaper  tells  them  the  exact  cash  value  of  their  secunties, 
and  they  are  as  sure  of  it  as  if  they  held  the  amount  in  money.  But 
if  there  were  no  great  centre  of  exchange,  they  would  never  know 
how  much  they  were  worth ; the  sale  of  their  securities  would  often 
involve  delay,  embarrassment  and  uncertainty,  and  the  actual  value 
of  their  investments  would  be  greatly  diminished  from  the  fact  that 
they  were  not  readily  convertible  into  money.  The  Stock  Exchange 
has  come  into  existence  and  assumed  its  present  importance  because  it 
is  a necessity  to  the  country.  Its  activity  and  life  represents  the  vital- 
ity and  growth  of  the  nation^s  material  interests,  and  so  it  will  continue 
to  be  while  the  national  prosperity  lasts,  and  capital  and  enterprise 
have  active  work  to  perform. 


r) 


4 L.  W.  HAMILTON  & CO.,  STOCK  BROKERS. 


Business  Honor  at  the  Exchange. 

There  is  no  class  of  men  in  the  country  that  preserve  stricter  rules 
in  their  dealings  than  the  members  of  the  New  York  Stock  Exchange. 
The  regulations  of  the  Board  are  such  that  their  accounts  must  be 
square  with  everybody.  If  a member  were  detected  in  a fraud  upon 
his  customers,  or  failed  to  fulfill  his  contracts,  his  seat  would  be  for- 
feited and  sold  for  the  benefit  of  his  creditors.  So  long  as  he  occupies 
a seat  in  the  Board  he  must  be  financially  sound,  and  his  transactions 
must  be  free  from  all  irregularity.  All  certificates  of  stock,  buyers’  or 
sellers’  options.  Stock  Privileges  and  all  other  contracts,  to  be  a good 
delivery,  must  be  signed  or  endorsed  by  a member  of  the  Board. 

As  a membership  is  worth  $5,000  and  upwards,  the  cost  varying  at 
different  times,  independent  of  its  value  to  the  broker  as  a means  of 
carrying  on  his  business,  the  inducement  to  preserve  it  is  a strong  one. 
But,  besides  this,  the  members  are  not  often  men  of  such  character  as 
to  cheat  those  who  deal  with  them.  They  feel  a certain  pride  in  the 
strict  principles  on  which  the  business  of  the  street  is  carried  on,  and 
desire  to  keep  up  the  reputation  of  the  Board. 

False  reports,  sensational  rumors,  forged  telegrams  and  letters,  and 
such  other  illegitimate  means  as  are  sometimes  used  to  produce  mo- 
mentary changes  in  the  market,  do  not  originate  with  the  brokers  of 
the  Exchange,  but  with  outside  parties,  who  hang  about  endeavoring 
to  make  an  occasional  profit  by  these  expedients.  It  was  among 
members  of  the  Board  that  the  law  to  punish  the  circulation  of  false 
news,  enacted  by  the  last  Legislature,  was  planned,  and  it  was  passed 
through  their  influence. 

As  to  the  great  combinations  which  have  sometimes  been  formed  to* 

I carry  particular  stocks  upward  or  downward  in  the  scale,  there  are  dif- 

j ferent  opinions  as  to  their  fairness,  but  as  a general  rule,  they  are  ap- 

proved of  by  the  lucky  parties  and  condemned  by  the  others.  Their 
plans  always  involve  risk  to  the  schemers,  and  often  come  to  a very 
different  end  from  that  set  down  in  the  programme.  The  capitalists 
! who  make  such  attempts  to  control  the  market  are  generally  not 
I brokers. 

I A stranger  visiting  the  Stock  Exchange,  during  an  active  market, 

j would  suppose  that  the  scene  before  him  was  one  of  such  confusion  and 

j excitement,  that  fairness,  order  and  business  accuracy,  could  not,  by 
I any  possibility,  be  brought  out  of  it.  But,  notwithstanding  the  vast 
number  of  transactions,  and  the  wonderful  rapidity  with  which  they 
are  effected,_  there  are  very  few  mistakes  or  disputes.  There  can  be  no 


No.  lO  WALL  STREET,  NEW  YORK.  5 


better  proof  of  the  exactness  and  completeness  of  the  system  pursued 
than  the  daily  accomplishment  without  misunderstanding  of  this  great 
mass  of  business,  involving  such  enormous  values. 

In  dealing  at  the  Exchange  through  a broker,  one  has,  therefore, 
better  security  for  fair  treatment  than  in  transactions  of  almost  any 
kind,  in  the  fact  that  his  agent  belongs  to  an  organization  governed  by 
the  most  stringent  rules,  which  it  has  ample  power  to  enforce.  The 
fact  of  his  membership  is  also  proof  that  his  business  record  is  clear,  as 
the  Board  is  very  exclusive,  three  adverse  votes  preventing  the  admis- 
sion of  any  applicant. 


Brokers  and  their  Customers. 

It  is  almost  necessarily  the  wish  of  a broker  that  those  who  buy  and 
sell  through  his  agency  should  be  successful  in  their  operations.  Next 
to  his  own  failure,  the  worst  mishap  that  can  occur  to  any  business 
man  is  the  failure  of  his  customers,  as  their  prosperity  is  the  essence  of 
his  thrift. 

The  Wall  Street  broker  knows  that  if  his  customer  makes  hand- 
some profits,  both  his  ability  and  his  inclination  to  extend  his  opera- 
tions will  be  increased,  and  that  his  success  will  very  probably  induce 
others,  to  whom  he  will  tell  it,  to  come  into  the  same  office.  Men  seem 
to  feel  a peculiar  pleasure  in  gains  made  in  speculative  operations,  and 
very  few  make  a secret  of  them.  It  is,  therefore,  always  probable  that 
the  broker  will  take  the  best  care  he  can  of  the  interests  of  those  who 
entrust  him  with  their  orders^  If  they  ask  his  opinion  he  will  give  it 
honestly,  and  in  some  cases,  if  he  sees  inexperienced  parties  taking 
steps  which  are  evidently  mistaken  ones,  he  will  offer  them  information 
or  advice  which  will  prevent  an  unnecessary  loss.  He  is  prepared  to 
answer  questions  and  furnish  reliable  statistics  regarding  the  standing 
of  any  incorporated  company,  and  the  value  of  its  shares  and  bonds  j 
he  will  also  keep  his  customers  posted  on  the  current  topics  of  the 
street,  and  any  new  movement  at  the  Exchange. 

As  the  broker  and  the  customer  have  in  reality  a common  interest, 
the  experience  of  the  former  and  his  knowledge  of  all  the  details  of  the 
market,  are  safely  available  for  new  operators  as  w'ell  as  for  those  who 
have  themselves  become  familiar  with  the  Exchange  and  its  ways.  It 
will  not  be  his  fault  if  his  customer  meets  with  losses  through  inexpe- 
dient or  unlucky  transactions  5 and  when  the  operator’s  affairs  turn  out 
favorably,  and  his  profits  roll  up  to  handsome  sums,  the  result  will 
afford  satisfaction  to  his  broker  as  well  as  to  himself. 


6 L.  W.  HAMILTON  & CO.,  STOCK  BROKERS. 


Taking  a Flyer, 


There  are  a class  of  men  who  are  not  ordinarily  seen  in  Wall  Street 
but  are  fond  of  watching  the  market  from  a distance,  and  making  ven- 
tures at  considerable  intervals,  improving  such  opportunities  as  they 
think  particularly  favorable  whenever  they  arise.  You  will  find  some 
sagacious  old  bank  president,  or  country  capitalist,  sitting  down  before 
his  comfortable  fire  every  evening  in  the  year  reading  his  favorite  Wall 
Street  journal,  with  a mind  quite  undisturbed  by  the  fluctuations  of 
stocks,  until  there  appear  signs  of  some  change  of  great  importance. 

The  market,  perhaps,  has  been  in  a state  of  depression  and  dullness 
through  a summer  season,  and  is  at  last  beginning  to  show  new  activity 
and  life  j orders  are  coming  to  the  brokers  from  all  quarters ; the 
volume  of  business  at  the  Stock  Exchange  is  rapidly  increasing,  and 
evidently  mustering  for  a grand  campaign.  Then  our  wary  capitalist 
re^s  every  word  of  the  news  with  the  closest  attention  ,*  he  carefully 
selects  the  stocks  that  he  will  purchase,  and  sends  a telegram  and 
check  to  his  trusted  broker  in  the  city.  The  movement  in  the  market 
goes  on ; prices  rise  10  or  20  per  cent,  within  a month  j Wall  Street  is 
full  of  excitement,  when  the  broker  receives  an  order  to  sell  the  stocks 
bought  for  the  country  capitalist,  and  having  done  so,  credits  him  with 
a large  profit.  The  rural  mansion  perhaps  shows  a new  Brussels  car- 
pet on  the  parlor  floor,  and  the  young  lady  of  the  house  sits  down  to 
play  the  new  Steinway  piano,  on  which  her  heart  has  been  for  some 
time  set  j while  the  glowing  countenance  of  the  head  of  the  family,  as 
he  presides  at  the  generous  Christmas  dinner,  illustrates  the  satisfactory 
f results  that  may  come  from  taking  a “ flyer  ” in  Wall  Street.  Or,  to  show 

( the  meaning  of  this  popular  phrase  by  another  case,  suppose  a mer- 

I chant  has  collected  a considerable  amount  of  money  from  his  customers 

^ and  finds  the  times  too  dull,  and  the  immediate  prospect  of  trade  too 

f unfavorable  to  justify  him  in  using  the  cash  that  he  has  in  hand  to 

make  any  large  purchases  of  goods.  He  does  not  wish  to  let  his 
money  lie  idle,  and  having  perhaps  occasionally  made  a little  venture 
1 in  Wall  Street,  and  so  acquired  some  experience  in  stock  transactions, 

f he  again  looks  in  that  direction  for  a profitable  w^ay  of  employing  his 

i funds.  At  the  same  time  other  business  men  throughout  the  country 
I are  in  the  same  situation  with  himself ; money  is  accumulating  in  the 

I cities,  and  the  banks  are  reporting  immense  deposits  j speculators  are 

I able  to  borrow  large  sums  at  low  rates  of  interest,  for  the  purchase  of 
stocks,  and  a multitude  of  buyers  are  coming  into  the  market,  because 
f for  the  time  being  they  can  find  no  other  kind  of  investment  that  pro- 
mises satisfactory  return. 


No.  lO  WALL  STREET,  NEW  YORK.  7 


Under  these  circumstances,  if  the  merchant  makes  his  purchase  with 
good  judgment,  he  does  the  best  thing  possible  in  using  his  money  to 
buy  stock.  The  situation  of  affairs  is  such  that  an  important  advance 
is  almost  certain  to  take  place,  and  when  he  has  realized  a handsome 
profit,  he  will  be  able  to  convert  his  funds  into  cash  again,  and  he  pre- 
pared to  re-invest  them  in  his  regular  business.  Many  of  the  most 
successful  bankers,  merchants  and  manufacturers  in  the  country  have 
been  in  the  habit  of  employing  their  spare  funds,  from  time  to  time,  in 
taking  flyers  such  as  we  have  described.  In  fact,  it  is  hardly  pos- 
sible for  any  intelligent  and  enterprising  business  man,  who  knows  any- 
thing of  Wall  Street  affairs,  and  the  ease  with  which  large  profits  are 
frequently  made,  to  resist  the  inducements  to  take  them,  which  will 
sometimes  be  presented  by  his  own  circumstances  and  the  general 
financial  situation. 


The  Wall  Street  Vocabulary. 

To  fully  comprehend  the  business  of  Wall  Street,  it  is  necessary 
that  the  terms  and  phrases  used  by  brokers  should  be  thoroughly 
understood.  In  the  Stock  Exchange  such  terms  as  Cash  ^ 
‘‘Kegular”  Buyer  30’^  Seller  30”  are  constantly  heard.  They  are 
phrases  without  which,  or  without  some  similar  abbreviation  of  speech, 
a large  stock  market  would  be  impossible.  For  the  benefit  of  such  of 
our  readers  as  are  not  familiar  with  the  meaning  of  these,  and  other 
phrases  peculiar  to  Wall  Street,  we  have  prepared  the  following  brief 
explanations : j 

Cash. — When  stocks  are  sold  for  cash  the  seller  must  deliver  them  ? 

the  same  day  they  are  sold,  at  or  before  2.15  P.  M.  The  purchaser  is  j 

also  bound  to  receive  and  pay  for  them  within  this  time.  In  stock  i 

quotations  C.  is  used  as  an  abbreviation  of  cash,  1 

Regular  — When  the  buyer  of  stock  receives  and  pays  for  it  on  I 

the  day  following  that  on  which  the  sale  is  made,  the  transaction  is  | 

called  regular ; this  being  the  way  in  which  sales  are  usually  made,  is  ] 

always  regarded  as  binding,  when  no  special  agreement  has  been  mad©  ! 

to  the  contrary.  In  all  transactions  the  stock  must  be  delivered  ! 

before  2.15  P.  M.,  as  the  purchaser  is  not  obliged  to  receive  it  after  j 

this  hour.  j 

Buyers^  and  Sellers^  Options. — The  mysterious  characters,  s 3,  | 

B 3,  s 15,  B 30,  and  similar  ones,  often  puzzle  readers  of  the  market  | 

reports.  They  stand  for  Seller  3,  Buyer  3,  Seller  15,  Buyer  30,  and  j 

indicate  that  the  party  selling  or  buying  the  stock  reserves  the  privi- 


8 L.  W.  HAMILTON  & CO.,  STOCK  BROKERS, 


lege  of  delivering  or  taking  it,  as  the  case  may  be,  at  any  time  witbin 
the  number  of  days  indicated  by  the  figures.  When  stock  is  sold 

seller  3,”  the  seller  can  deliver  it  at  once,  or  at  any  time  within  3 
days.  When  sold  Buyer  3,”  the  buyer  can  require  its  delivery  at 
once,  or  at  any  time  vdthin  three  days.  Three  days  options  bear  no 
interest ; beyond  this  time  6 per  cent,  interest  is  paid  by  the  purchaser 
from  the  day  of  sale  to  the  day  of  delivery.  When  an  order  to  buy  or 
sell  is  given,  the  first  point  necessary  to  know  is,  when  the  person 
wishes  to  receive  or  deliver  the  stock.  It  is  apparent  that  where  the 
seller  vushes  money  immediately  he  sell  Cash  ; where  he  can  get  a 
higher  price  or  cannot  make  a delivery  of  the  stock  until  the  next  day 
he  sells  Begular  ; where  a longer  time  is  required  before  he  can  make 
a delivery,  he  sells  Seller  3,  Seller  10,  or  Seller  30  j but  if  he  can 
deliver  the  stock  at  any  time,  he  sells  Buyer  3,  10,  or  30,  as  may  be 
desired  by  the  purchaser,  and  thereby  gets  a better  price,  as  the  buyer 
is  willing  to  pay  a trifle  more  for  the  stock,  for  the  advantage  of  taking 
it  at  any  time  he  pleases. 

Maegixs. — A sum  of  money  deposited  by  a person  speculating  in 
stocks  with  a broker,  to  secure  the  latter  against  loss  on  funds  advanced 
by  him  to  assist  his  customer  in  his  speculations.  The  amount  usually 
required  by  brokers  as  a margin  on  which  to  buy  or  sell  stocks  is  10 
per  cent,  of  their  par  value,  amounting  to  $1,000  on  one  hundred  shares. 

CARRYrs'G  Stocks. — When  a broker  is  holding  stock  for  a customer, 
retaining  it  in  his  own  possession  until  ordered  to  sell,  he  is  said  to  be 
carrying  the  stock  for  his  customers  account.  As  by  far  the  greater 
part  of  the  money  used  in  stock  speculation  is  furnished  by  the  broker, 
it  is  necessary  for  him  to  retain  the  stock  in  his  possession  as  security 
for  the  money  advanced. 

Long  and  Short. — When  a party  has  purchased  stock  and  is 
holding  it  for  higher  prices  he  is  said  to  be  long  of  the  stock  he  is 
holding.  When  he  has  sold  stock  which  he  does  not  at  the  time 
possess,  for  future  delivery,  expecting  to  be  able  to  purchase  it  at  a 
lower  figure,  he  is  said  to  be  short  of  the  stock.  For  example,  suppose 
a party  thinking  Pacific  Mail  will  advance,  buys  100  shares,  and  at  the 
same  time  expecting  a decline  in  Western  Union,  he  sells  100  shares 
for  future  delivery,  we  should  say  he  was  long  of  Pacific  Mail,  and 
short  of  Western  Union.” 

Borrowing  Stock. — When  a party  has  sold  stock  short  in  the  reg- 
ular way  he  must  borrow  it  of  some  one  who  has  it,  in  order  to  deliver 
it  to  the  purchaser.  This  can  usually  be  done  by  depositing  the  money 


No.  lO  WALL  STREET,  NEW  YORK.  9 


received  for  the  stock,  with  the  party  of  whom  it  is  borrowed,  as  a 
guarantee  that  the  stock  will  be  returned  to  the  lender  when  called  for. 
No  interest  is  charged  on  short  sales,  as  the  broker  uses  the  money  re- 
ceived for  the  stock,  to  deposit  with  the  party  of  whom  he  borrows  it. 

Bulls  axd  Bears. — A speculator  wdio  buys  stocks  for  an  advance, 
in  the  expectation  of  higher  prices,  is  called  a hull^  but  if  he  sells 
stocks  short,  expecting  to  make  a profit  on  a decline,  he  is  called  a 
hear.  The  origin  of  these  phrases,  like  all  other  broken  metaphors,  is 
probably  due  to  a pungent  conception  of  facts.  If  a bear  finds  any- 
thing in  his  travels,  whether  it  be  a turkey  on  a roost,  or  a man  on  a 
'tree,  he  lifts  his  paw  and  pulls  it  down.  The  bull,  on  the  contrary, 
lowers  his  head  only  to  give  men  and  things  a decided  upward  movement. 

The  application  of  these  terms  to  stock  speculators  is  too  obvious  to 
need  explanation.  Bull  operators  take  a stock  at  its  lowest  price,  and 
attempt  to  toss  it  up  to  as  high  a figure  as  possible  ; hear  operators,  on 
the  other  hand,  prefer  to  pull  values  down  to  the  lowest  possible  figure. 

Believing  that  prices  are  too  high,  the  hear  sells  for  future  delivery, 
and  is  said  to  be  short  of  the  stock  ] the  bull  buys,  confident  that  pri- 
ces will  be  higher,  and  is  said  to  be  long,  possibly  because  this  word  is 
the  opposite  of  short,  or  suggestive  of  the  length  of  his  purse. 

Into  these  two  classes  all  the  speculators,  who  are  the  life  of  Wall 
Street  are  divided ; the  hulls  of  to-day  are  hears  to-morrow.  There  are 
men  who  constitutionally  hopeful — always  looking  for  a rise ; and 
others  w'ho  equally  disbelieve  everything,  and  invariably  go  short 
of  stocks  in  their  operations.  The  large  majority,  however,  alternate 
from  hull  to  hear,  and  from  hear  to  hull,  occording  to  the  speculative 
outlook. 

Pool. — A combination  of  speculators,  formed  for  the  purpose  of 
buying  up  any  particular  stock,  and  thereby  advancing  the  price. 

Corner. — When  a stock  has  passed  into  the  hands  of  a Pool,  and 
the  hears  having  sold  largely  for  future  delivery,  are  short  of  the  stock, 
the  members  of  the  pool  can,  of  course,  make  them  pay  any  price  they 
choose  for  the  stock  they  have  agreed  to  deliver.  A large  advance  in 
the  price  is  the  result  and  there  is  said  to  be  a corner  in  the  stock. 

Abbreviations. — The  letter  x or  ex-div,  are  used  to  show  that  a stock 
is  sold  without  the  dividend,  which  is  about  to  be  paid,  and  that  it  re- 
mains, in  that  case,  in  the  hands  of  the  seller  j G,  for  guaranteed ; 
Cons,  for  consolidated  j and  Pf.  for  preferred  stock,  or  stock  which  has 
precedence  of  the  ordinary  shares  of  the  corporation  issuing  it,  with 
respect  to  the  payment  of  dividends,  none  being  allowed  on  the  com- 
mon stock  until  a certain  percentage  has  been  paid  on  the  preferred. 


lO  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS, 


I A Put  Contract. 

I A Contract  giving  the  holder  the  privilege  of  selling  to  the  party 
I signing  it,  a certain  number  of  shares,  of  any  particular  stock,  within  a 
; definite  time,  at  a stipulated  price,  is  called  a Put.  The  party  selling  a 
Put  agrees  in  the  contract  to  purchase  from  the  holder  the  stock  named, 

! at  a stated  price,  which  is  usually  from  1 to  2 per  cent  below  the  mar- 
! ket  price,  at  the  time  the  contract  is  signed.  This  per  cent,  below  the 
I marketplace  at  which  a Put  is  drawn  is  called  the  distance  from  the  market, 
and  is  regulated  by  the  activity  of  the  stock,  and  the  demand  for  the 
contracts. 

The  time  for  which  a Put  contract  is  usually  drawn  is  thirty  days, 
although  they  can  be  made  for  a longer  or  shorter  time  if  desired. 
The  cost  of  a thirty-day  Put  is  one  per  cent,  of  the  par  value  of  the 
stock,  amounting  to  8100  on  one  hundred  shares.  The  brokers  com- 
mission for  buying  a Put  is  $6.25,  making  the  entire  cost,  including 
the  commission,  $106.25. 

The  following  is  a copy  of  a Put  on  onC  hundred  shares  of  Erie,  the 
market  price  being  32,  and  the  distance  2 per  cent. 

New  York^ 187 

For  value  received^  the  hearer  may  deliver  to  the  undersigned  one 
hundred  shares  of  the  stock  of  the  Erie  Bailway  Company ^ at  thirty  per 
cent,  of  its  par  value,  at  any  time  tvithin  thirty  days  from  this  date.  The 
undersigned  is  entitled  to  all  regular,  or  extra,  dividends  declared  during 
this  time. 

Expires 187  S igned 

When  a Put  is  held  on  a stock  that  has  declined  in  price,  the  holder 
will  on  the  day  it  expires,  or  before  if  the  fall  in  price  has  been  suffi- 
cient to  show  a good  profit,  buy  the  stock  at  the  market  price,  and  de- 
liver it  to  the  party  of  whom  the  Put  was  purchased,  at  the  higher 
price  named  in  the  contract.  The  difiTerence  between  the  price  at 
which  the  stock  is  bought,  and  the  price  at  which  it  is  delivered,  is  the 
profit  made  on  the  transaction,  less  the  cost  of  the  Put  and  the  brokers 
commission.  The  buying  of  the  stock,  and  settling  the  contract  is 
usually  done  by  the  broker  through  whom  the  Put  was  purchased. 
The  money  necessary  to  buy  the  stock  is  furnished  by  the  broker,  who 
charges  a commission  of  $12.50,  one  one  hundred  shares  for  doing  the 
business.  That  the  reader  may  more  fully  understand  this  operation, 
let  it  be  supposed  that  within  the  thirty  days  Erie  declines  to  20,  and 
the  holder  of  the  Put  orders  his  broker  to  buy  one  hundred  shares  and 
settle  the  contract.  The  broker  buys  the  stock  at  20,  paying  $2,000. 


No.  lO  WALL  STREET,  NEW  YORK.  11 


for  it,  and  delivers  it  to  the  party  of  whom  the  Put  was  purchased  at 
30,  the  contract  price,  receiving  for  the  one  hundred  shares  the  sum  of 
$3,000,  and  renders  the  following  statement  of  the  transaction,  show- 
ing a net  profit  to  the  holder  of  the  Put  of  SSSl. 25,  on  an  investment 
of  only  $106.25,  with  no  risk  of  a greater  loss. 

New  Yonk 187 


M 

In  account  with  L.  W.  HAMILTON  & CO. 


Dr. 

To  Put  on  100  shares  Erie  at  32 $100  00 

“ Broker’s  commission  per  cent 6 25 

100  shares  Erie,  bought  at  20 2,000  00 

“ Commission  for  buying  stock,  ^ per  cent 12  50 

“ Balance  to  credit 987  50 


Cr. 

By  Cash  paid  for  Put  and  commission $106.25 

“ 100  shares  Erie  delivered  to  seller  of  Put  at  30 3,000  00 

$3,106.25 

From  balance  to  credit $987  50 

Deduct  amount  paid  for  Put  and  commission 106  25 


And  net  profit  on  the  operation  is $881.25 


Should  the  price  of  Erie  advance,  instead  of  decline,  and  remain  at 
or  above  30  during  the  time  for  which  the  Put  was  drawn,  the  holder 
would  not  buy  it,  but  would  let  the  contract  expire  without  delivering 
the  stock.  In  this  case  the  loss  would  be  only  $106.25,  the  cost  of  the 
contract.  But  should  the  market  price  of  the  stock  be  at  any  point 
below  30  on  the  day  it  expired,  the  holder  *of  the  Put  would  buy  one 
hundred  shares,  and  deliver  it  to  the  party  who  signed  the  contract, 
realizing  the  difference  between  the  price  at  which  the  stock  was 
bought,  and  30  the  contract  price.  If  the  stock  was  bought  at  29, 
the  amount  realized  would  be  $100,  or  the  exact  cost  of  the  Put,  and 
the  loss  would  be  simply  the  broker’s  commissions,  amounting  to  $18.75. 
If  the  stock  was  bought  at  28,  $200  would  be  realized,  or  a net  profit 
of  $81.25. 

A Put  is  exactly  the  reverse  of  a Call,  and  should  be  purchased  on 
a stock  that  is  likely  to  decline  in  price.  Whenever  a panic  occurs  in 
the  stock  market,  the  holders  of  Put  Contracts  always  make  large 
profits.  Many  shrewd  speculators  make  a practice  of  buying  Puts  on 
any  stock  that  has  advanced  rapidly,  in  anticipation  of  a decline,  it 
being  well  understood  that  a fall  almost  invariably  follows  a sudden 
rise. 


12  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS. 


How  a Put  is  Used  as  a Margin. 

It  is  necessary  for  the  safety  of  a broker,  when  he  purchases  and 
holds  stock  for  a customer,  that  the  latter  should  deposit  a sum  sufficient 
to  ensure  him  against  loss  in  case  the  stock  should  decline  in  value 
before  it  was  sold.  This  deposit,  or  margin,  as  it  is  termed,  was  for- 
merly 10  ten  per  cent,  of  the  par  value  of  the  stock,  amounting  to 
$1,000  on  one  hundred  shares.  Instead  of  this  plan,  that  of  using  a 
much  smaller  sum,  together  with  a Put,  is  now  employed  to  a very 
large  extent  and  with  much  greater  safety  to  the  speculator.  A Put 
being  a contract,  signed  by  some  responsible  party,  to  take  the  stock 
at  a figure  one  or  two  per  cent,  below  the  price  at  which  it  was  bought, 
the  broker  has  a guarantee  that  the  possible  loss  on  the  stock  is  limited 
to  one  or  two  hundred  dollars.  For  this  reason  the  broker  will  only 
require  a cash  margin  equal  to  the  difference  between  the  price  at 
which  the  stock  is  bought,  and  the  price  at  which  the  signer  of  the  Put 
agrees  to  take  it. 

By  this  method  the  losses  of  the  speculator  are  limited  to  compari- 
tively  small  sums ; while,  if  the  market  rises,  in  accordance  with  his 
expectations  when  the  purchase  was  made,  his  profits  will  be  nearly 
as  large  as  under  the  old  system,  the  only  additional  expense  being 
the  cost  of  the  Put. 

Should  the  price  of  a stock  decline  to  the  contract  price  of  the  Put 
before  it  was  purchased,  a broker  would  require  no  cash  margin  to  be 
deposited,  the  Put  being  sufficient  security  to  carry  the  stock.  Stock 
can  always  be  bought  against  a Put  without  any  cash  margin,  when 
the  market  price  of  the  stock  is  at,  or  below,  the  contract  price  of  the 
Put.  But  when  the  market  price  of  the  stock  is  above  the  price  named 
in  the  contract,  a sum  equal  to  the  difference  is  required.  For  ex- 
ample : — A Put  on  Pacific  Mail  at  40  would  be  good  security  for  a 
broker  to  buy  the  stock,  if  he  could  get  it  at  that  figure  ; but  if  the  price 
was  41,  a deposit  of  $100  would  be  required,  if  42,  $200. 

Many  speculators  buy  Puts,  but  do  not  buy  the  stock  until  the  price 
has  declined  to  a figure  at  or  below  the  Put  price.  Should  the  stock 
be  bought  below  the  Put  price,  a profit  is  certain,  as  the  stock  can  be 
delivered  to  the  party  who  signed  the  Put  at  a figure  above  the 
cost  of  it. 

In  operations  of  this  kind  the  speculator  is  required  to  deposit  a sum 
sufficient  to  cover  commission  and  interest  charges,  $50  on  one  hun- 
dred shares,  being  the  usual  amount  required.  To  illustrate  this 
method  of  operating  we  will  suppose  that  when  Union  Pacific  was 


No.  lO  WALL  STREET,  NEW  YORK.  13 


selling  at  50,  a party,  thinking  the  price  would  advance,  buys  a Put  on 
one  hundred  shares  at  per  cent  below  the  market,  and  at  the  same 
time  buys  the  stock  at  50.  The  cost  of  the  Put  would  be  $100,  the 
cash  margin  required  $150,  and  the  $50  for  interest  and  commissions 
would  make  a total  of  $300,  that  the  broker  would  require  for  the 
operation.  Before  the  Put  expires.  Union  Pacific  sells  at  70,  and  the 
broker,  receiving  an  order  from  his  customer,  sells  at  that  price,  and 
makes  the  following  statement  of  the  transaction : 

New  York, 187 

M 

In  account  with  L.  W.  HAMILTON  & CO. 


Dr. 

To  Put  on  100  shares  Union  Pacific  at  48^ $100  00 

“ Commission  for  buying  the  same 6 25 

100  shares  Union  Pacific  at  50 5,000  00 

“ Commission  buying  stock 12  50 

“ “ selling  stock 12  50 

Interest  on  stock  30  days 29  16 

Balance  to  credit 2,139  59 


$7,300  00 
Cr. 

By  cash  paid  for  Put $100  00 

**  “ deposited  for  margin 150  00 

**  “ “ for  com.  and  interest 50  00 

**  100  shares  Union  Pacific,  sold  at  70 7,000  00 


$7,300  00 

From  balance  to  credit,  $2,139.59,  deduct  $300  deposited  with  the 
broker,  and  the  net  profit  on  the  transaction  is  $1,839.59. 

One  advantage  of  this  method  of  operating  is,  that  stock  can  be 
bought  and  held  until  the  Put  expires  without  risking  the  loss  of  over 
$300.  The  extent  of  the  loss  in  an  operation  of  this  kind  is  reached 
when  the  stock  falls  to  the  Put  price,  which  in  this  case  was  482,  and 
remains  at  or  below  that  figure  until  the  Put  expires.  No  greater  loss 
is  made  by  this  method,  when  the  stock  falls  10  per  cent,  than  when  it 
falls  H per  cent.,  as  the  seller  of  the  Put  contracts  to  take  the  stock  at 
Ih  per  cent,  below  the  price  at  which  it  was  bought,  without  regard  to 
the  market  price,  at  the  time  the  stock  is  delivered  to  him.  The  specu- 
lator is  in  this  way  ensured  against  only  a limited  loss,  without  placing 
any  limits  to  his  profits. 


14  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS. 


A Call  Contract. 

A contract  for  the  futnre  delivery  of  stock  is  termed  a Call,  and 
gives  the  holder  the  privilege  of  purchasing  of  the  party  with  whom 
the  contract  is  made,  a certain  number  of  shares  of  the  stock  named, 
within  a definite  time,  at  a stipulated  price  j or  in  other  words,  the 
party  who  sells  a Call  agrees  to  deliver  to  the  purchaser,  if  called  for, 
the  stock  named  at  the  contract  price,  which  is  usually  from  to  3 
per  cent,  above  the  market  price  of  the  stock  at  the  time  the  contract 
is  signed.  This  per  cent,  is  called  the  distance  from  the  market,  and 
is  governed  by  the  activity  of  the  stock  and  the  demand  for  contracts. 
At  a time  when  the  market  is  very  active  and  stocks  are  rapidly  ad- 
vancing, the  distance  is  always  greater  than  w’hen  the  market  is  dull, 
or  when  prices  are  on  the  decline. 

The  purchaser  of  a Call  is  not  obliged  to  take  the  stock,  and  will 
not  do  so  unless  the  price  advances  above  the  contract  price.  In  case 
the  price  of  the  stock  remains  at  or  below  the  contract  price,  until  the 
expiration  of  the  time  for  which  it  was  given,  the  purchaser  of  the  Call 
W’iil  lose  only  the  amount  paid  for  it,  w'kich  is,  including  broker^s  com- 
mission for  pm'chasing,  $106.25  on  one  hundred  shares.  But  should  the 
stock  advance  above  the  contract  price,  the  holder  of  the  Call  will 
receive  the  difference  between  that,  and  the  market  price.  An  advance 
of  1 per  cent,  would  be  $100  on  one  hundred  shares;  an  advance  of  10 
per  cent,  would  be  $1,000.  "While  the  risk  of  loss  to  the  purchaser  of 
a Call  is  limited  to  the  sum  paid  for  it,  the  amount  of  profit  that  may 
be  realized  is  unlimited.  A Call  is  exactly  the  reverse  of  a Put  and 
should  be  purchased  on  stocks  that  are  most  likely  to  advance  in  price. 
The  cost  of  a Thirty-day  Call  is  1 per  cent,  of  the  par  value  of  the 
stock,  amounting  to  $100  on  one  hundred  shares,  and  in  the  same  pro- 
portion for  a longer  or  shorter  time.  The  broker^s  commission  for 
buying  a Call  is  l-16th  of  one  per  cent.,  amounting  to  $6.25  on  one 
hundred  shares.  The  following  is  a copy  of  a Call  on  100  shares 
of  Union  Pacific,  the  market  price  being  47,  and  the  distance  3 per 
cent. 

New"  York, 1S7 

For  value  received,  the  hearer  may  Calx  on  the  undersigned  for  One 
Hundred  shares  of  the  stock  of  the  Union  Pacific  Railroad  Company,  at 
Fifty  per  cent,  of  its  par  value,  at  ayiy  time  within  Thirty  Bays  from 
this  date.  The  Holder  of  this  Contract  is  entitled  to  all  regular,  or  extra, 
dividends  declared  during  this  time. 

Expires 1S7  . Signed 


No.  lO  WALL  STREET,  NEW  YORK.  IS 


The  holder  of  a Call  on  a stock  that  has  advanced  will  on  the  day 
it  expires,  or  before  if  the  price  has  advanced  sufficiently  to  show  a 
good  profit,  call  for  the  stock  at  the  contract  price,  and  sell  it  at  the 
market  price,  the  difference  being  the  profit  on  the  transaction,  less 
the  cost  of  the  Call  and  the  broker’s  commission.  Calling  for  the 
stock  and  selling  it  is  termed  closing  the  contract,  and  is  usually 
done  by  the  broker  through  whom  the  Call  was  purchased.  The 
broker  will  always  furnish  the  money  to  pay  for  the  stock,  and 
for  doing  this  and  for  selling  the  stock  will  charge  a commission 
of  $12.50  on  one  hundred  shares.  Should  Union  Pacific  advance 
to  72  within  the  thirty  days,  and  the  broker  be  instructed  to  close 
the  contract,  he  would  call  on  the  party  who  signed  the  contract, 
for  the  stock  at  50,  paying  $5,000  for  the  100  shares,  and  immediately 
sell  it  at  72,  receiving  for  it  the  sum  of  $72,000.  The  following  is  a 
copy  of  the  statement  that  would  be  rendered  by  the  broker,  showing 
a net  profit  of  $2,081.25  on  an  investment  of  only  $106.25,  with  no 


risk  of  a greater  loss : 

New  York, 187 

M 

In  account  with  L.  W.  HAMILTON  & CO. 

Dr. 

To  Call  on  100  shares  Union  Pacific  at  50 $100  00 

“ Broker’s  commission  for  buying  Call 6 25 

100  shares  Union  Pacific,  called  at  50 5,000  00 

“ Commission  for  selling  the  same -....f....  12  50 

**  Balance  to  credit 2,187  50 

$7,306  25 
Cr. 

By  cash  paid  for  Call  and  commission $106  25 

“ 100  shares  Union  Pacific  sold  at  72  7,200  00 


$7,306  25 

From  balance  to  credit $2,187  50 

Deduct  amount  paid  for  Call  and  commission 106.25 

And  the  net  profit  on  the  Call  is $2,081  25 


It  is  not  often  that  a stock  advances  enough  during  thirty  days  to 
pay  as  large  a profit  as  this,  but  a profit  of  from  $500  to  $1,000  is  fre- 
quently realized  on  100  shares. 

Parties  buying  Calls  incur  no  liability  of  loss  beyond  the  amount 
paid  them,  and  no  money  is  required  from  the  speculator  to  pay  for  the 
stock  when  the  contract  is  settled.  The  money  to  buy  the  stock  is  ad- 
vanced by  the  broker,  who  will,  after  selling  it,  pay  to  his  customer  the 
profit  on  the  transaction. 


16  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS. 


How  a Call  is  Used  as  a Margin. 

A great  majority  of  operators,  when  coming  into  Wall  Street  for  tho 
first  time,  make  their  plans  wfith  reference  to  the  profits  to  be  derived 
from  upward  movements  in  stocks,  paying  no  attention  to  the  fact  that 
a decline  in  the  market  can  be  made  a source  of  qiiite  as  large  gains  as 
an  advance,  by  thpse  who  are  able  to  foresee  and  improve  it.  But  as 
speculators  become  familiar  wdth  the  w^hole  system  of  Wall  Street 
speculation,  they  cease  to  confine  themselves  to  speculating  for  a rise, 
and  not  only  buy  when  they  anticipate  an  advance,  but  sell  stocks 
short  or  for  future  delivery,  -when  there  are  indications  of  a decline. 

For  example,  if  a party  thought  Lake  Shore  w^as  likely  to  fall,  when 
it  was  selling  at  83,  he  might  order  his  broker  to  sell  100  shares  short, 
or  for  future  delivery,  without  having  the  stock  in  his  possession  when 
the  order  was  given.  If  the  broker  sold  the  stock  in  the  regular  way, 
he  would  borrow  the  stock  for  delivery,  from  some  one  who  had  it  on 
hand,  depositing  with  them  as  security  the  money  received  from  the 
sale  of  it.  Or,  he  might  sell  the  stock  Seller  30,”  which  wmuld  give 
him  30  days  in  which  to  delivering  it.  Having  thus  sold  100  shares, 
and  borrowed  the  stock  for  delivery,  or  contracted  to  deliver  it  within 
30  days,  he  would  buy  the  stock  when  it  had  declined  to  a point  where 
a good  profit  could  be  realized.  If  it  declined  to  75,  and  he  bought  at 
that  price,  he  would  pay  $7,500  for  100  shares,  and  either  return  the 
stock,  if  he  Imd  borrowed  it,  or  deliver  it  if  he  sold  it  Seller  30,”  and 
receive  $8,300,  the  price  at  which  it  was  sold.  The  profits  on  the 
transaction  would  be  $800,  less  the  broker’s  commission  for  selling  and 
buying  the  stock. 

But  the  broker  in  making  the  sale  or  contract  for  future  delivery  at 
83,  (for  the  fulfilment  of  which  he  must  himself  become  responsible,) 
could  not  be  sure  that  the  stock  would  not  rise,  instead  of  fall,  as  his 
customer  expected ; and  in  that  case,  if  not  secured  in  some  way  by  his 
customer,  he  would  suffer  a loss.  Suppose  that  Lake  Shore  advanced 
to  90,  and  the  party  of  whom  it  was  borrowed  called  for  the  stock,  it 
would  be  necessary  for  the  broker  to  pay  90  for  it,  in  order  to  return 
the  stock  he  had  borrowed,  and  the  loss  would  be  $700.  Or,  suppose 
he  sold  it  for  delivery  any  time  within  30  days,  and  at  the  expiration 
of  the  time  Lake  Shore  sold  at  90,  he  would  be  obliged  to  pay  that 
price  for  it,  in  order  to  fulfil  his  agreement  with  the  party  to  whom  he 
sold  it  j in  either  case  the  loss  would  be  $700. 

The  broker,  therefore,  requires  some  security  to  protect  himself 
against  this  loss.  This  security  was  fonnerly  given  by  the  speculator 


No.  lO  WALL  STREET,  NEW  YORK.  17 


depositing  with  the  broker  $1,000  on  every  100  shares  sold,  but  since 
the  system  of  operating  with  Privileges  has  been  introduced,  a Call  on 
the  stock  is  deposited  with  the  broker,  together  with  the  difference  be- 
tween the  contract  price  and  the  price  at  which  the  stock  is  sold.  In 
this  case  we  are  supposing  that  some  responsible  party  w^ho  owned  100 
shares  of  Lake  Shore  would  sell  a Call  on  it  at  2 per  cent,  above  the 
market  price,  or  in  other  words,  would  agree  to  sell  the  stock,  if  called 
for  within  30  days,  at  85 ; for  this  contract  he  would  be  paid  $100. 
The  speculator  would  place  this  contract,  with  $200,  in  cash,  in  the 
hands  of  his  broker,  who  could  then  execute  the  order  to  sell  short 
without  risk  to  himself.  To  show  this,  we  will  suppose  as  before,  that 
Lake  Shore  advanced  to  90.  The  broker  would  demand  the  stock 
from  the  party  who  sold  the  Call  at  85,  paying  for  100  shares,  $8,500, 
and  deliver  the  same  to  the  party  to  whom  it  was  sold  at  83,  receiving 
for  it  $8,300.  The  difference  of  $200  would  be  covered  by  the  money 
deposited  by  his  customer,  and  he  would  lose  nothing.  The  customer 
would  lose,  in  consequence  of  his  miscalculation  of  the  course  of  the 
market,  only  the  $200  deposited,  with  $131.25  expended  for  the  Call 
and  broker^s  commissions,  in  all  $331.25. 

But  if  the  judgment  of  the  speculator  proves  to  have  been  correct, 
and  the  stock  declines,  as  we  at  first  supposed,  to  75,  the  sum  of  $800, 
which  we  found  to  represent  his  gross  profits,  would  be  reduced  only 
$106.25,  the  amount  paid  for  the  Call,  and  commission  for  buying. 

It  will  be  seen  by  this  illustration  that  a Call  can  be  used  as  a 
margin  for  selling  stocks  short  with  the  same  advantage  as  is  afforded 
by  a Put  in  buying  for  an  advance. 


A Straddle. 

A Double  Privilege  drawn  at  the  market  price  of  the  stock  is  called 
a Straddle.  The  cost  of  a Straddle  is  from  3 to  4^  per  cent.,  or  from 
$300  to  $450,  for  a contract  on  one  hundred  shares.  The  only  differ- 
ence between  a Straddle  and  a Spread  is,  that  one  is  made  at  the 
market  price  of  the  stocks,  the  other  at  a distance  from  the  market.  A 
Straddle  is  a contract  drawn  in  the  same  form  as  a Spread,  and  gives 
the  holder  the  privilege  of  calling  for  the  stock  at  a fixed  price,  or  of 
delivering  it  at  the  same  price  to  the  party  who  signs  the  contract.  A 
Straddle  is  desirable  when  a party  wishes  to  buy  and  sell  stocks,  with- 
out being  obliged  to  deposit  a cash  margin.  The  brokePs  commission 
for  buying  a Straddle  is  $12.50,  on  one  hundred  shares,  the  same  as  on 
a Spread. 


18  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS, 


A Spread  Contract. 

A Contract  giving  the  holders  the  privilege  either  of  buying  or  sell- 
ing a certain  number  of  shares  of  any  particular  stock,  at  a stipulated 
price,  within  a definite  time,  is  called  a Spread,  and  is  equivalent  to  a 
Put  and  Call  on  the  same  stock.  From  this  fact  it  is  sometimes  called 
a Double  Privilege.  It  is  drawn  at  from  1 to  2^  per  cent,  below  and 
the  same  distance  above  the  market  price  of  the  stock  at  the  time  the 
contract  is  signed.  The  cost  of  a Spread  for  thirty  days  is  2 per  cent, 
of  the  par  value  of  the  stock,  amounting  to  $200  on  one  hundred  shares. 
The  broker^s  commission  for  buying  a Spread  is  one-eighth  of  one  per 
cent.,  amounting  to  $12.50  on  one  hundred  shares,  making  the  entire 
cost  of  a thirty-day  Spread  on  100  shares  $212.50. 

The  following  is  a copy  of  a Spread  on  100  shares  of  Lake  Shore, 
the  market  price  of  the  stock  being  62,  and  the  distance  2 per  cent. : 

New  York:, 187  . 

For  value  received,  the  hearer  may  Call  on  the  undersigned  for  one 
hundred  shares  of  the  stock  of  the  Lake  Shore  Railway  Company  at  sixty- 
four  per  cent,  of  its  par  value,  at  any  time  within  thirty  days  from 
this  date. 

Or,  the  hearer  may,  at  his  option,  deliver  the  same  to  the  under- 
signed at  sixty  per  cent,  of  its  par  value,  at  any  tune  tcithin  the  period 
named.  All  regular  or  extra  dividends  declared  during  this  time  are, 
in  either  case,  to  go  u'ith  the  stock,  and  this  contract  is  to  he  surrendered 
upon  the  stock  being  either  called  or  delivered. 

Expires 187  . 

Signed 

The  holder  of  a Put  makes  a profit  only  when  the  stock  declines ; 
the  holder  of  a Call  only  when  it  advances.  But  the  holder  of  a Spread 
realizes  a profit  when  the  stock  either  rises  above,  or  falls  below  the 
contract  price,  and  loses  only  w’hen  the  market  is  very  inactive,  with 
but  slight  fluctuations  for  the  entire  thirty  days. 

Should  Lake  Shore  advance  to  70  at  any  time  within  the  thirty 
days,  the  holder  could  order  his  broker  to  settle  it,  which  would  be 
done  by  calling,  on  the  party  of  w’hom  the  contract  was  purchased,  for 
the  stock  at  64,  and  selling  it  at  70,  the  market  price,  the  same  as  in 
the  settlement  of  a Call.  The  proceeds  realized  w’ould  be  $600,  and 
the  net  profit  $375,  the  cost  of  the  Spread  and  the  broker’s  commissions 
being  $225. 


No.  lO  WALL  STREET,  NEW  YORK.  19 


Should  Lake  Shore  fall  to  54,  and  the  broker  receive  orders  to  close 
it,  he  would  buy  the  stock  at  that  figure,  paying  $5,400  for  it,  and 
deliver  it  to  the  party  of  whom  the  Spread  was  purchased  at  60,  the 
contract  price,  the  same  as  he  would  settle  a Put,  realizing  the  same 
profit  that  he  would,  had  the  stock  advanced  to  70.  The  commission  for 
closing  a Spread  is  $12.50  on  one  hundred  shares,  the  same  as  for  a 
Put  or  Call. 


Distance  and  Settlement  of  Privileges. 

The  price  paid  for  Puts,  Calls,  or  Spreads,  is  always  the  same,  being 
1 per  cent.,  or  $100  for  a Put  or  Call  contract,  and  2 per  cent.,  or  $200 
for  a Spread  contract  on  one  hundred  shares  of  stock.  But  the  rate,  or 
as  it  is  usually  termed,  the  distance  from  the  market  at  which  they  are 
drawn,  is  variable,  ranging  from  1 to  3^  per  cent.  A very  active  mar- 
ket, with  wide  fluctuations,  increases  the  demand  for  Privileges,  and 
the  distance  will  be  advanced  in  obedience  to  the  well  known  law  of 
supply  and  demand,  while  a dull  market,  with  narrow  fluctuations,  will 
. cause  sellers  to  offer  them  at  a much  smaller  distance  Lorn  the  market. 
Some  particular  stock  may  advance  rapidly  with  good  prospects  of  a 
further  rise,  like  Union  Pacific  in  April,  1875,  when  an  advance  of 
over  25  per  cent,  took  place  within  a month,  and  the  demand  for  Calls  will 
be  so  great  that  sellers  can  advance  the  distance  to  a higher  figure,  with- 
out decreasing  the  sales. 

It  is  usually  the  best  time  to  buy  Privilege  Contracts  when  the  dis- 
tance from  the  market  is  the  greatest,  as  it  will  always  be  found  that 
the  market  is  corresponding!}^  active,  and  the  chances  for  a large  profit 
much  better  than  on  contracts  bought  at  a small  distance  when  the 
market  is  dull  and  inactive.  In  buying  Contracts,  much  depends  on 
the  judgment  of  the  broker  in  securing  them  at  the  most  favorable 
time.  It  is  for  this  and  other  reasons  that  brokers  should  never  sell 
their  own  Contracts  to  their  customers,  as  they  would  then  be  interested 
against  their  customers.  Whenever  in  an  active  market  a broker 
assumes  to  give  the  distance  from  the  market  for  the  future,  it  is  safe  to 
say  that  he  proposes  to  sell  his  own  Contracts  to  his  customer, 
instead  of  buying  them  in  the  regular  way  at  the  Exchange,  as  it  is 
just  as  impossible  for  him  to  say  at  what  distance  he  can  buy  a Contract 
to-morrow,  as  it  is  for  him  to  foretell  the  future  price  of  the  stock. 

The  safest  course  for  speculators  to  pursue  is  to  place  their  orders  in 
the  hands  of  a thoroughly  responsible  broker,  and  trust  to  his  judgment 
and  discretion  in  securing  a Privilege  at  a time  when  the  market  is 


m 


20  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS. 


most  favorable,  both  in  price  and  distance.  When  reporting  the  pur- 
chase of  a Privilege,  brokers  should  always  state  the  market  price  of 
the  stock,  distance  from  the  market,  and  the  hour  of  the  day  when  the 
contract  was  purchased. 

WHEN  STOCK  PRIVILEGES  SHOULD  BE  SETTLED. 

Many  speculators  make  losses  in  operating  with  Stock  Privileges  by 
not  instructing  their  broker  to  settle  the  contract  at  the  proper  time, 
when,  if  the  right  order  had  been  given,  instead  of  a loss,  a profit 
would  have  been  realized.  To  secure  our  customers  a profit  of  100 
per  cent,  when  it  has  once  been  made,  without  losing  the  chance  of 
realizing  a much  larger  profit,  should  the  price  of  the  stock  move 
steadily  in  favor  of  the  contract,  we  have  prepared  a blank  form  of  a 
STOP  ORDER  to  be  used  by  our  customers  in  giving  the  necessary  in- 
structions to  settle  a Privilege  at  the  proper  time,  which  will  be  mailed 
free  on  application.  Whenever  a profit  can  be  made  equal  to  the  cost 
of  the  Privilege,  it  is  always  policy  to  secure  it,  and  purchase  another 
contract  on  the  same  stock,  rather  than  let  the  market  price  re-act  to  a 
point  where  little  or  nothing  can  be  made.  By  signing  and  returning 
to  us  the  order,  which  is  sent  with  all  certificates  of  purchase,  our 
customers  can  be  assured  that  their  contracts  will  be  properly  settled. 


Broker’s  Commission. 

The  following  are  the  regular  commissions  charged  by  all  members 
of  the  Stock  Exchange  for  buying  or  selling  Stocks  and  Stock  Privi- 


leges : 

For  buying  or  selling  100  shares  of  stock,  per  cent $12  50 

For  settling  Stock  Privileges  on  100  shares,  ^ per  cent 12  50 

For  buying  Spread  or  Straddle  on  100  shares,  ^ per  cent 12  50 

For  buying  Put  or  Call  on  100  shares,  per  cent 6 50 

The  following  is  the  cost  of  Thirty-day  Privileges,  including  the 
brokers^  commission : 

A Put  or  Call  on  10  shares $10.63 

A Spread  on  10  shares $21.25 

A Put  or  Call  on  25  shares $26.56 

A Spread  on  25  shares $53,13 

A Put  or  Call  on  50  shares $53.13 

A Spread  on  50  shares $106.25 

A Put  or  Call  on  100  shares $106.25 

A Spread  on  100  shares $212.50 


' ■< 


No.  lO  WALL  STREET,  NEW  YORK.  21 


Extensions  and  Renewals  of  Privileges. 

It  will  sometimes  happen  when  a Stock  Privilege  has  been  held  by 
the  purchaser  until  the  time  of  its  expiration  approaches,  that  the  price 
of  the  stock  will  have  moved  nearly,  but  not  quite  enough  to  show  a 
profit.  Under  these  circumstances,  the  holder  will  naturally  be  reluc- 
tant to  give  up  the  contract  and  accept  a loss,  perhaps  at  the  very  time 
when  a decided  movement  of  the  stock  in  his  favor  seems  the  strongest  j 
and  in  order  to  relieve  him  from  the  necessity  of  doing  so,  the  party 
who  sold  him  the  privilege  will  generally  be  willing  to  extend  it 
for  another  thirty  days  for  a less  sum  than  was  originally  paid  for  it. 
The  price  paid  for  the  second  thirty  days  is  usually  $75  for  Puts  and 
Calls  on  100  shares,  or  | per  cent.,  and  $150  for  Spreads.  On  less 
than  100  shares  the  price  paid  for  the  extension  is  in  the  same  propor- 
tion. When  the  price  of  the  stock  on  the  day  the  privilege  expires  is 
about  the  same  figure  that  it  was  when  the  contract  was  purchased,  it  is 
always  best  to  secure  an  extension  if  possible.  When  a speculator  has 
purchased  a Call  and  the  price  of  the  stock  has  fallen  materially,  in- 
stead of  advancing  as  he  expected  it  would,  or  a Put  and  the  price  has 
advanced,  a renewal  of  the  contract  w^ould  be  more  to  his  advantage. 
A renewal  differs  from  an  extension  in  the  fact  that  a change  in  the 
contract  price  of  the  stock  is  made  in  the  former,  but  not  in  the  latter. 
Sometimes  an  extension  should  be  obtained,  and  at  other  times  a re- 
newal would  be  most  desirable,  according  to  the  market  price  of  the 
stock,  as  compared  with  the  contract  price  of  the  privilege.  The  cost 
is  the  same  and  we  will  always  secure  for  our  customers,  whichever 
is  most  desirable.  To  secure  either  an  extension  or  a renewal  of  any 
privilege,  it  is  necessary  that  we  should  receive  an  order  for  doing  it, 
on  or  before  the  day  it  expires.  Many  parties  make  a handsome  profit 
on  the  entire  investment  during  the  second  thirty  days,  who  otherwise 
would  lose  the  first  cost  of  the  privilege. 

Should  we  receive  an  order  to  secure  an  extension  or  a renewal  of 
a contract  that  could,  on  the  day  it  expired,  be  settled  at  a profit,  we 
should  disregard  the  order,  and  settle  the  privilege  instead.  Cases  of 
this  kind  often  occur,  by  the  market  becoming  very  active  on  the  day 
the  contract  expires.  In  no  instance  do  we  secure  an  extension  or  re- 
newal when  it  is  not  for  the  interest  of  our  customer  that  we  should  do 
so,  even  though  we  may  have  an  order  from  him  to  do  it. 

The  commission  charged  for  securing  an  extension  or  renewal  is  the 
same  as  for  jmaking  the  first  purchase,  being  $6.25  for  a Put  or  Call 
on  one  hundred  shares  of  stock,  and  in  the  same  proportion  fora  smaller 
number. 


22  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS, 


Why  Stock  Privileges  are  Sold. 

The  question  is  often  asked  by  persons  who  are  unacquainted  with 
"Wall  Street  affairs,  what  inducements  there  are  for  capitalists  to  sell 
Privileges.  The  persons  by  whom  these  contracts  are  made,  they  say, 
are  generally  among  the  most  experienced  and  able  men  in  the  street ; 
and  they  express  surprise  that  these  parties  should  make  agreements 
which  would  seemingly  take  money  out  of  their  own  pockets  as  fast  as 
they  put  it  into  the  pockets  of  the  holders  of  their  contracts.  It  is  just  j 
' here,  however,  that  the  fallacy  lies  j the  truth  being  that  there  is  a di-  j 
j vision  of  profits  between  the  seller  and  the  buyer  of  the  Privilege,  i 
I neither  of  them  taking  his  share  from  the  resources  of  the  other.  The 
seller,  in  the  conservative  spirit  which  usually  governs  capitalists,  is 
contented  with  a small  margin  of  profit  on  each  transaction,  which  he  | 
; receives  in  the  shape  of  the  sum  paid  for  the  contract,  and  the  differ- 
I ence  of  one  or  two  per  cent,  between  the  price  of  the  stock  at  the  time 
; when  the  contract  is  made,  and  that  which  he  agrees  to  receive  or  de- 
j liver  it. 

I The  buyer  of  the  Prhfilege  will  have  the  profit  arising  from  any  ad- 
: vance  or  decline  in  the  price  of  the  stock,  within  the  time  and  limits  fixed 

! in  the  contract,  and  his  side  of  the  transaction  being  more  of  a specula- 
! tive  character,  his  profits  will  often  be  very  much  larger  than  those  of 
the  seller  of  the  Privilege. 

Suppose  a capitalist  to  be  holding  stock  in  the  expectation  of  an  ad- 
I vance,  intending  to  dispose  of  it  and  secure  his  profits  after  a rise  of 
per  cent.  If  he  sells  Calls  at  that  distance  above  the  market  price,  at 
the  rate  of  8100  for  every  100  shares,  he  will  add  that  sum  to  his  gain 
of  8150  on  every  100  shares  held.  The  following  figures  will  show 
the  profits  made  by  each  party  in  such  a transaction,  letting  A repre- 
sent the  seller  of  a Call  on  Union  Pacific,  and  B the  purchaser,  the 
price  at  the  date  of  the  contract  being  30,  and  the  Call  being  made 


at  31^. 

Received  by  A for  Call  on  100  shares SlOO  00 

Received  for  100  shares  stock  sold  to  B at  31^ 3,15<)  00 

$3,250  00 

Value  of  stock  when  Call  is  sold $3,000  00 

Net  profit  to  A,  the  seller,  on  the  transaction 250  00 


$3,250  00 

In  this  case  the  party  who  sold  the  Call  ret^ived  8100  for  it,  which 
added  to  the  per  cent,  advance  on  the  stock  makes  the  net  gain  to 
the  seller  of  the  Call  8250. 


No.  lO  WALL  STREET,  NEW  YORK.  23 


If  the  price  has  advanced  to  38,  at  the  time  when  the  stock  is  deliv- 
ered to  B,  his  account,  after  selling  the  stock,  will  stand  as  follows : 


Keccived  for  100  shares  stock  at  38 $3,800  00 

Paid  A for  Call  contract. $100  00 

Broker’s  commission,  buying  Call 6 *25 

Paid  A for  100  shares  stock  at  31^ 3,150  00 

Broker’s  commission,  selling  stock 12  50 

Net  profit  to  B,  the  buyer,  on  transaction 531  25 


$3,800  00 

On  the  same  principle,  if  A should  sell  100  shares  shorty  or  for  future 
delivery,  by  selling  a Put  on  it,  he  would  add  $ 1 00  to  his  profits  by 
the  decline. 

Again,  suppose  the  capitalist  desires  to  obtain  100  shares  at  a price 
below  that  at  which  the  stock  is  selling  at  the  time.  He  sells  a Put 
at  1 per  cent  distance  from  the  market  for  $100,  making  himself  secure 
of  that  sum  in  any  case,  and  if  the  stock  declines  as  he  expects,  he  will 
get  it  at  a price  virtually  2 per  cent,  less  than  that  which  it  commands 
at  the  time  of  issuing  the  contract. 

A Put  is  also  frequently  issued  by  a broker  who  has  an  order  to  buy  a 
stock  as  soon  as  it  shall  have  declined  to  a certain  price.  This,  being 
an  agreement  on  the  part  of  his  customer  to  take  the  stock  at  a given 
figure,  is,  to  him,  as  good  as  a Put ; and  he  accordingly  sells  a Put 
against  it  without  incurring  any  risk.  When  the  stock  falls  to  a point 
within  1 per  cent  of  the  price  at  which  the  order  to  buy  has  been  given, 
he  will  negotiate  the  Privilege  at  that  distance  below  the  market.  If 
it  continues  to  decline  and  is  delivered  to  him,  he  will  turn  it  over  to 
his  customer  without  loss  to  himself;  if  it  rises,  and  is  therefore  not 
ofiered  to  him  by  the  buyer  of  the  option,  he  will  have  nothing  further 
to  do  in  the  transactions ; but  in  either  case,  he  will  evidently  make  the 
$100  paid  as  the  price  of  the  Put. 

Another  reason  for  the  sale  of  Privileges  is  the  desire  on  the  part  of 
cliques  and  large  operators  to  produce  a favorable  impression,  or  the 
opposite,  with  respect  to  any  stocks  which  they  happen  to  be  attempt- 
ing to  control.  If  they  wish  to  sustain  the  price  of  a stock,  they  will 
sell  Puts  on  it  at  a very  small  distance  from  the  ruling  price  at  the 
''time;  if  they  wish  to  depress  it,  they  will  sell  Calls  on  it  in  the  same 
\ way.  While  the  manceuvres  of  cliques  are  often  ruinous  to  themselves 
' and  to  hundreds  of  others,  they  always  afford  great  advantages  to  those 
who  operate  by  means  of  Privileges.  These  result  partly  from  the 
wide  fiuctuations  occasioned  by  their  movements,  and  partly  from  the 
very  favorable  terms  on  which  they  sell  Puts  and  Calls.  When  there 


I 


24  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS. 


are  two  contending  cliqnes  in  a stock,  each  selling  options  veiy  close 
to  the  market,  and  on  opposite  sides  of  it,  the  Purchaser  of  a Put  and 
a Call  is  almost  certain  of  a handsome  profit. 

The  foundation  of  the  business  of  selling  Privileges  is  capital.  Men 
of  very  small  means  may  enter  the  field  of  speculation  as  purchasers  of 
Privileges,  but  those  who  sell  them  are  parties  known  to  be  financially 
strong,  sound  ond  reliable.  The  inducements  for  capitalists  to  sell 
Double  Privileges  are  more  complex  in  their  character  than  those 
which  lead  them  to  sell  Puts  and  Calls,  but  essentially  of  the  same 
nature.  The  seller  of  a Double  Privilege  must  have  the  funds  in  hand 
to  take  the  stock  and  pay  the  stipulated  price  for  it,  if  it  declines  and 
is  put  or  offered  to  him  for  acceptance,  in  accordance  with  the  terms  of 
the  contract  j and  he  must  also  either  have  in  his  possession  such  an 
amount  of  the  stock  itself  as  he  has  agreed  to  deliver,  or  keep  in  readi- 
ness the  funds  to  step  into  the  market  and  buy  it  at  a moment’s  notice, 
so  as  to  be  prepared  to  deliver  it  to  the  holder  of  the  Privilege  in  case 
it  rises  and  is  called. 

For  instance,  the  seller  of  a Double  Privilege  on  Xew  York  Central 
at  1 per  cent,  distance  from  the  market  price,  which  we  will  assume  to 
be  104,  agrees  in  the  contract  either  to  take  the  stock  at  103,  or  to  de- 
liver it  at  105.  He  therefore  keeps  the  sum  of  $10,300  at  command, 
so  as  to  take  the  stock  if  put  to  him  at  103,  and  also  buys  100  shares 
of  New  lork  Central  at  the  market  price,  and  keeps  it  in  his  safe 
ready  to  be  delivered  if  called  from  him  at  105. 

If  the  price  rises  and  the  stock  is  called,  his  profits  will  evidentlv  be 
secure.  He  will  have  the  benefit  of  the  advance  in  value  of  the  100 
shares  held,  from  104  to  105,  amounting  to  $100,  besides  the  $200 
paid  him  for  the  Privilege. 

On  the  other  hand,  if  the  stock  falls  and  is  put  to  him,  the  net  cost 
of  the  200  shares  which  he  will  then  hold  will  be  only  102^  j the  100 
shares  which  he  purchased  at  the  outset  having  cost  $10,400;  the  100 
shares  delivered  to  him  on  the  contract  costing  him  $10,300 ; and  the 
sum  total  of  $20,700  being  reduced,  by  the  $200  received  as  the  price 
of  the  contract,  $20,500,  or  $10,250  for  each  amount  of  100  shares. 

It  will  be  seen  that  the  seller  of  the  Privilege,  in  the  case  just  taken, 
is  sure  of  either  making  a clear  profit  of  $300,  or  of  getting  200  shares 
of  New  York  Central  at  a figure  1^  percent,  below  the  market  price  at 
the  time  when  the  contract  is  made.  Like  the  party  to  whom  he  sells 
the  Privilege,  he  has  two  strings  to  his  bow,  and  is  secure  of  a material 
advantage,  though  not  certainly  knowing  which  way  the  market  will 
turn. 


No.  lO  WALL  STREET,  NEW  YORK. 


26 


If  the  maker  of  the  Privilege  does  not  wish,  however,  to  be  bur- 
dened with  100  shares  in  addition  to  those  originally  held,  he  will 
easily  avoid  it  by  selling  short  when  the  price  declines  to  103.  That 
is,  he  will  sell  100  shares  at  that  price  for  future  delivery,  and  when 
the  stock  is  put  to  him  by  the  holder  of  the  Privilege,  he  will  take  it 
at  103,  and  at  once  turn  it  over,  at  the  same  price,  to  the  party  to  whom 
he  has  sold.  In  this  way  he  will  avoid  increasing  the  amount  of  stock 
on  his  hands,  and  the  $200  received  for  the  Privilege,  will  still  go  to 
diminish  the  net  cost  of  the  100  shares  originally  held. 

As  the  sellers  of  Privileges  are  commonly  men  of  judgment  and  ex- 
perience in  financial  affairs,  they  are  governed  by  their  views  of  the 
general  situation  of  the  market,  at  different  times,  in  making  their  con- 
tracts and  in  their  mode  of  preparing  to  meet  them.  As  a rule,  they 
perhaps  retain  the  stock  put  to  them  on  a declining  market,  and  hold 
it  for  an  advance,  They  thus  make  sure  of  buying  at  low  prices  on 
an  average,  besides  having  the  sums  paid  them  for  their  contracts  to 
reduce  their  net  outlay  still  further.  The  sale  of  Privileges,  properly 
conducted,  cannot  be  regarded  as  a speculative  business,  but  affords 
sure,  though  not  extravagant  returns.  It  is  to  the  Purchaser  of  Privi- 
leges that  the  possibility  of  large  profits  on  single  transactions  is  re- 
served, notwithstanding  the  comparatively  trifling  amount  of  capital 
which  his  operations  require.  It  is  not  an  unusual  occuiTence  that  a 
Put  or  Call  on  100  shares  is  settled  at  a profit  of  two  or  three  thousand 
dollars,  and  on  sixty-day  contracts  the  profit  is  often  much  greater. 

As  both  the  sellers  and  the  buyers  of  Privileges  may  be  gainers,  it 
it  will  perhaps  be  asked,  whether  all  parties  operating  in  Wall  Street 
can  make  money  at  the  same  time.  The  idea  which  prevails  in  tne 
mind  of  the  public  is,  that  the  street  is  somewhat  like  a great  gambling 
establishment,  where  anything  that  is  gained  by  one  individual  must 
be  lost  by  some  other.  The  fact  is,  however,  that  there  are  times  when 
almost  all  operators  in  stocks  are  doing  well.  When  money  is  flowing 
freely  from  other  forms  of  investment  into  the  shares  sold  at  the  Ex- 
change, and  the  whole  market  is  rising,  all  but  the  few  w'ho  attempt  to 
resist  the  tide  by  selling  short  will  be  growing  richer. 

Yet  it  is  perfectly  true  that  a large  proportion  of  the  profits  made 
by  the  sellers  and  buyers  of  Privileges,  represents  the  losses  of  other 
parties ; and  these  are  the  reckless  or  inexperienced  speculators  who 
adhere  to  the  dangerous  system  of  buying  on  cash  margins.  Thus  it  is 
that  prudent  men  in  the  end  take  precedence  of  mere  thoughtless  ad- 
venturers in  Wall  Street,  as  w’ell  as  in  every  other  sphere  of  business 
activity. 


26  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS. 


Brokers  and  Speculators. 

The  business  of  a broker,  whether  in  stocks,  cotton,  grain,  or  any 
other  article  of  merchandize,  cannot,  on  sound  principles,  be  united 
with  that  of  a speculator,  or  with  that  of  carrying  on  ordinary  trade  for 
his  own  account.  The  broker  must  be  an  active  and  wide-awake  man 
in  the  market,  carefully  gathering  all  information  that  may  be  of  value 
to  buyers  and  sellers ; but  his  object  should  be  to  obtain  this  informa- 
tion for  the  benefit  of  his  customers,  and  not  directly  for  his  own  use. 
His  activity,  intelligence,  and  acquaintance  with  the  business,  are  in 
fact  the  very  inducements  which  lead  his  customers  to  make  him  their 
agent  in  their  transactions,  and  he  is,  therefore,  bound  to  communicate 
to  them  fully  whatever  knowledge  he  may  possess  that  may  be  of  use 
to  them.  A broker  who  is  known  to  speculate  on  his  own  account, 
soon  loses  the  confidence  of  his  customers,  and  finds  their  patronage 
decreasing.  If  he  recommends  the  purchase  of  a certain  stock,  they 
will  suspect  that  it  is  because  he  has  it  on  his  hands  and  desires  to  sell 
it,  or  to  see  the  price  strengthened  by  an  increased  demand  j and  if  he 
advises  them  to  sell,  they  will  fear  that  he  is  short  of  the  stock,  and 
interested  in  producing  a decline. 

The  laws  which  govern  the  general  business  of  brokerage  apply 
with  full  force  to  the  sale  of  Stock  Privileges.  A broker  will  some- 
times be  asked,  when  recommending  a Privilege  on  any  particular 
stock  as  a good  purchase,  w’hy  he  does  not  buy  it  himself  j his  answer 
will  be,  that  it  is  because  he  is  a broker  and  not  a speculator  j that  his 
business  is  one  of  absolute  safety,  giving  steady  and  valuable  returns, 
with  which  he  chooses  to  remain  satisfied,  rather  than  to  sacrifice 
them  for  the  advantages  to  be  derived  from  successful  speculation. 
For  reasons  similar  to  those  which  should  prevent  a broker  from  pur- 
chasing Privileges  for  the  purpose  of  speculating  for  himself,  it  is  not 
best  that  he  should  issue  or  sell  Privileges  on  his  own  account. 

The  fact  that  the  signature  affixed  to  a Privilege  is  that  of  the  broker 
who  offers  it  for  sale,  is  sufficient  to  produce  doubt  in  the  mind  of  a 
customer,  as  to  the  soundness  of  any  ad\dce  that  he  may  give  with  ref- 
erence to  its  purchase. 

The  proper  business  of  the  broker  is  to  bring  buyers  and  sellers 
together.  Being  constantly  present  in  the  market,  and  having  daily 
interviews  with  the  Capitalists  and  large  Operators  who  issue  Privi- 
leges, he  is  able  to  render  indispensable  aid  to  buyers  of  these  con- 
tracts, and  also  to  accommodate  the  parties  who  sell  them  by  finding 
ready  purchasers. 


No.  lO  WALL  STREET,  NEW  YORK.  27 


But  by  selling  Privilege  Contracts  signed  by  himself,  he  must  sacri- 
fice the  interests  of  both  the  parties  between  whom  he  ought  to  act  as 
a middleman.  He  interferes  with  the  interests  of  the  capitalists  by 
whom  Privileges  are  usually  sold,  by  entering  into  competition  with 
them  in  their  own  special  line  of  business ; and  he,  of  course,  loses 
favor  with  them  in  consequence.  They  will  prefer  to  deal  with  the 
broker  who  brings  them  all  the  custom  that  he  can,  and  they  will 
make  their  most  favorable  terms  in  their  transactions  with  him.  The 
broker  who  offers  his  own  Privileges  for  sale  also  loses  favor  with 
buyers.  The  transactions,  as  between  themselves  and  him,  is  one 
which  involves  confidence  on  their  part.  Being  themselves  in  some 
measure  unacquainted  with  the  market,  they  require  the  assistance  of  a 
broker  who  is  not  only  experienced  and  well  informed,  but  entirely 
disinterested. 

But  the  broker  who  deals  only  in  Privileges  Issued  by  others,  has 
the  entire  confidence  of  his  customers,  and  will  secure  for  them  the 
best  terms  possible,  as  his  popularity  and  success  in  business  depends 
in  a great  measure  on  his  doing  so.  His  interest  and  theirs  will  per- 
fectly coincide,  which  will  be  a strong  guarantee  that  their  orders  will 
be  executed  to  the  best  advantage. 


The  Routine  of  the  Exchange, 

Every  school-boy  in  the  country  has  heard  of  the  New  York  Stock 
Exchange.  Every  one  knows  that  it  is  a scene  of  immense  daily  trans- 
actions in  stocks ; that  it  is  full  of  excitement  and  activity ; and  that 
great  fortunes  are  made  and  lost  in  it.  But  very  few,  outside  of  Wall 
Street,  are  acquainted  with  the  details  of  the  business  which  is  carried 
on  in  it,  or  know  anything  of  its  daily  routine.  At  10  o’clock  in  the  fore- 
noon the  members  of  the  Board  begin  to  assemble  in  their  hall,  and  at 
10.30  all  stocks  dealt  in  at  the  Exchange  are  called  in  regular  order 
by  the  Vice-President,  and  the  bids  and  offers  that  are  made  for  each 
of  them  in  its  order,  are  recorded  on  one  of  the  large  blackboards 
placed  on  each  side  of  the  President’s  desk  for  this  purpose.  At  1 
o’clock  the  second  call  of  stocks  takes  place,  and  at  3 o’clock  the  hours 
of  business  end. 

Though  large  amounts  of  stock  are  sometimes  sold  in  this  way,  yet 
the  greater  part  of  the  sales  are  made  at  other  times,  whenever  the 
orders  from  customers  happen  to  be  received  by  the  brokers.  Each 
active  stock  has  some  particular  part  of  the  hall  assigned  to  it,  where 
those  who  are  dealing  in  it  may  be  seen  collected.  As  you  look  down 


28 


L.  W.  HAMILTON  & CO.,  STOCK  BROKERS, 


on  the  floor  of  the  hall  from  the  Visitors'  Gallery,  you  see  these  groups 
in  all  parts  of  the  room.  The  brokers  are  rapidly  making  bids  and 
offers  at  the  top  of  their  yoices,  raising  their  fingers  in  the  air  to  em- 
phasize them  j and  the  noise  that  proceeds  from  the  whole  assembly  of 
oyer  one  thousand  brokers  is  yery  confusing  to  a stranger.  But  the^ 
mode  in  which  the  business  is  done  is  neyertheless,  in  fact,  a perfect 
model  for  system  and  order,  and  it  is  seldom  that  a mistake  occurs  in 
the  execution  of  an  order. 

To  illustrate  the  exact  way  in  which  stocks  are  bought  and  sold,  let 
us  suppose  a speculator  wishes  to  buy  100  shares  of  Union  Pacific. 
He  repairs  to  his  brokers  office,  and  writes  his  order  to  purchase  that 
amount,  or  if  at  a distance  from  the  city,  he  sends  his  order  by  tele- 
graph. The  moment  it  is  receiyed,  a clerk  or  boy  rushes  away  with  it 
to  the  Stock  Exchange,  where  it  is  deliyered  to  the  member  of  the 
firm  who  is  in  attendance  there  at  the  time.  He  at  once  makes  his 
way  into  the  crowd,’^  where  Union  Pacific  is  being  sold,  and  proceeds 
to  bid  for  the  stock,  until  he  obtains  it  at  the  price  named  in  the  order, 
or  at  a lower  one  if  he  finds  it  possible  to  do  so.  A notice  of  the 
transaction  is  promptly  sent  to  the  customer,  and  the  price,  with  the 
number  of  shares  sold,  are  instantly  telegraphed,  by  the  instrument  in 
the  hall,  to  the  headquarters  of  the  stock-telegraph  company,  and 
thence  in  all  directions  to  brokers’  offices,  hotels  and  other  places 
where  indicators  are  kept.  The  sale  thus  made  determines  the  price  of 
stock  at  that  moment,  and  will  be  obseryed  with  interest  by  hundreds 
of  speculators  who  are  closely  watching  the  telegraph  instruments  in 
different  parts  of  the  city. 

The  next  day,  before  2.15  P.  M.,  the  broker,  by  whom  the  stock 
was  sold,  will  send  100  shares  of  Union  Pacific  to  the  firm  through 
whom  it  was  bought,  and  a check  for  the  yalue  will  be  giyen  in 
return.  If  the  customer  chooses  to  pay  cash  for  the  stock,  he  will  of 
course  take  it  and  keep  it  in  his  own  possession ; but  if  it  is  bought  on 
a margin  or  against  a Put,  it  will  be  locked  up  in  his  broker’s  safe  till 
tbe  order  to  sell  it  is  giyen.  If  the  stock  is  bought  “ buyer  3 ” it 
need  not  be  receiyed  and  paid  for  until  the  third  day  afterwards ; if 
bought  ^^casli”  it  must  be  taken  and  paid  for  the  same  day. 

In  this  way  the  business  of  Wall  Street  goes  on  with  perfect  method 
and  exactness,  the  yast  negotiations  of  each  day  being  carried  out  on 
the  following  one  Avithout  failure  or  misunderstanding.  The  system 
affords  the  strongest  of  all  proofs  of  the  rapidity  with  which  immense 
dealings  in  stocks  can  be  carried  on,  and  of  their  adyantage,  in  this 
respect,  oyer  all  other  forms  of  inyestment. 


No.  lO  WALL  STREET,  NEW  YORK.  29 


Profits  Made  on  Privileges. 

When  Privileges  are  bought  at  the  right  time  on  any  of  the  active 
stocks,  the  profits  realized  on  them  is  very  large,  when  compared  with 
the  small  amount  paid  for  the  contracts.  v 

The  following  table  will  show  the  profits  made  on  Puts  and  Calls, 
on  100  shares  of  the  most  active  stocks,  during  the  first  six  months  of 
1875.  On  contracts  for  less  than  100  shares,  the  profits  were  in  the 
same  proportion. 


Feb.  18,  Western  Union  sold  at  70J,  and  Calls  were 
sold  at  73i ; Mar.  17,  the  price  was  78^,  and 
Call  contracts  were  settled  at  a net  profit  of 
Feb.  27,  Pacific  Mail  sold  at  33,  and  Calls  were  sold  at 
25^ ; March  27,  the  price  was  451,  and  Call 
contracts  were  settled  at  a net  profit  of 
March  1,  Union  Pacific  sold  at  40f,  and  Calls  were 
sold  at  411  j Mar.  29,  the  price  was  681, 

Call  contracts  were  settled  at  a net  profit  of 
March  1,  North-west  sold  at  38|,  and  Calls  were  sold 
at  401 ; Mar.  9,  the  price  was  45 1,  and  Call 
contracts  were  settled  at  a net  profit  of 
March  1,  Wabash  sold  at  111,  and  Calls  w’ere  sold  at 
12f ; March  30,  the  price  was  18,  and  Call 
contracts  were  settled  at  a net  profit  of 
April  22,  Ohio  and  Miss,  sold  at  281,  and  Puts  were 
sold  at  27;  May  21,  the  price  was  21,  and 
Put  contracts  were  settled  at  a net  profit  of 
May  8,  Erie  sold  at  301,  and. Puts  were  sold  at  29; 

May  26,  the  price  was  161,  and  Put  con- 
tracts were  settled  at  a net  profit  of 
May  8,  Lake  Shore  sold  at  72f,  and  Puts  were  sold 
at  71 ; June  1,  the  price  was  57,  and  Put 
contracts  were  settled  at  a net  profit  of 
May  8,  Pacific  Mail  sold  at  441,  and  Puts  were  sold 
at  421;  June  3,  the  price  was  32,  and  Put 
contracts  were  settled  at  a net  profit  of 
June  1,  Union  Pacific  sold  at  791,  were  sold 

77;  June  3,  the  price  was  701,  and  Put 
contracts  were  settled  at  a net  profit  of 
June  1,  St.  Paul  sold  at  351,  and  Puts  were  sold  at 
34;  Juno  12,  the  price  was  28 1,  and  Put 
contracts  were  settled  at  a net  profit  of 
June  1,  Western  Union  sold  at  711,  Calls  were 
sold  at  731;  June  29,  the  price  was  781,  and 
Call  contracts  were  settled  at  a net  profit  of 


$381.25 

$856.25 

$2,518.25 

$418.75 

$406.25 

$481.25 

$1,131.25 

$1,281.25 

$906.25 

$656.25 

$418.75 

$331.25 


30  L.  W.  HAMILTON  & CO.,  STOCK  BROKERS, 


A Daily  Report  of  the  Stock  Market. 

For  the  benefit  of  our  customers  we  publish  a Daily  Report  of  all 
sales  made  at  the  Stock  Exchange,  which  will  be  mailed  free  to  any 
address.  In  addition  to  the  market  report  and  rates  for  Stock  Privi- 
leges, we  also  give  a brief  report  of  Wall  Street  news,  and  endeavor  to 
keep  our  readers  posted  regarding  the  probable  course  of  the  market. 

It  frequently  occurs  that  we  receive  private  information  regarding 
some  particular  stock  that  will  materially  affect  its  value  as  soon  as  the 
facts  are  made  public,  and  when  our  customers  act  on  such  information 
they  are  almost  sure  to  make  a profit.  Should  it  become  known  that  a 
Railway  Company  will  fail  to  pay  the  interest  on  its  bonds  when  due, 
the  stock  will  be  sure  to  fall,  and  parties  who  buy  Puts  on  it  before 
the  decline  takes  place  will  be  certain  to  realize  a large  profit. 

On  the  other  hand,  should  the  earnings  of  a Company  show  a marked 
increase,  and  the  prospect  of  a dividend  on  the  stock  be  favorable,  the 
price  would  rapidly  advance.  In  this  case,  parties  buying  Calls  would 
make  a handsome  profit.  The  rise  and  fall  in  the  price  of  all  active 
stocks,  which  is  daily  taking  place,  is  almost  invariably  preceded  by 
certain  signs  well  known  to  the  careful  observer.  For  instance,  when 
the  price  of  the  bonds  of  a company  have  advanced,  v/e  are  con- 
fident that  the  stock  will  rise ; but  when  the  price  of  the  bonds  have 
declined,  we  expect  to  see  a fall  in  the  price  of  the  stock. 

It  often  occurs  that  a party  desirous  of  speculating  in  a certain 
stock  is  undecided  which  to  purchase,  a Put  or  a Call.  If  it  were  pos- 
sible for  a person  to  foresee  the  movement  in  stocks,  he  would  know 
what  kind  of  a Privilege  to  purchase.  But  as  the  wisest  are  often 
mistaken  in  their  views  regarding  the  future  course  of  the  market, 
many  prefer  to  buy  Spreads,  so  that  should  the  stock  either  advance  or 
decline,  they  are  sure  of  a profit.  If  they  have  a Spread,  and  the 
stock  falls,  they  settle  the  Put  side  of  the  contract ; if  it  rises,  they 
settle  the  Call  side. 

Many  of  our  customers  residing  at  a distance  send  us  orders  for 
Privileges,  leaving  it  to  us  to  make  the  investment  in  such  stocks  as  in 
our  judgment  seems  best.  To  our  old  customers  it  is  needless  for  us  to 
say  that  such  orders  always  receive  our  careful  attention.  But,  to  those 
who  may  favor  us  with  an  order  for  the  first  time,  we  would  say  that 
whenever  we  do  not  consider  it  prudent  to  execute  the  order  immediately, 
we  await  a more  favorable  time  before  making  the  investment.  All 
persons  desirous  of  receiving  our  Market  Report,  regularly,  must  send 
their  address  to  our  ofiice. 


/ 


No.  lO  WALL  STREET,  NEW  YORK.  31 


L.  W.  HAMILTON  & CO., 

^Stock  ^rokers, 

No.  10  WALL  STREET,  NEW  YORK. 

We  buy  and  sell  on  commission,  for  cash  or  on  a margin,  Railway 
Stocks,  Bonds,  Gold,  and  all  securities  dealt  in  at  the  New  York  Stock 
Exchange.  All  stocks  bought  or  sold  on  a margin  of  5 per  cent,  of 
their  par  value,  amounting  to  $500,  on  100  shares.  Stocks  bought  or 
sold  against  Privileges,  on  a deposit  of  a sum  equal  to  the  difference 
between  the  market  price  of  the  stock  and  the  contract  price  of  the 
Privilege,  and  $50  to  cover  commission  and  interest  charges.  Less 
than  100  shares  will  not  be  bought  or  sold  on  a margin  or  against  a 
Privilege.  Interest  at  the  rate  of  seven  per  cent,  per  annum  is  charged 
for  money  advanced  to  buy  stocks. 

We  also  pay  particular  attention  to  purchasing  Stock  Privileges,  and 
can  always  secure  Puts,  Calls,  Spreads  or  Straddles  on  all  active  stocks, 
signed  by  members  of  the  Stock  Exchange,  or  other  responsible  parties, 
at  the  best  market  rates. 

Contracts  purchased  for  parties  residing  at  a distance  from  New  York 
will  be  held  by  us  subject  to  their  order,  for  which  a certificate  of  pur- 
chase will  be  issued.  In  order  to  be  able  to  take  advantage  of  the 
market,  and  settle  Privileges  at  the  most  favorable  time,  it  is  necessary 
that  we  should  retain  the  contracts  in  our  possession.  Our  thorough 
know'ledge,  acquired  by  years  of  experience  in  the  Exchange,  of  the 
movements  of  the  pow’erful  combinations  of  capitalists,  often  formed  to 
control  the  prices  of  the  leading  stocks,  and  an  intimate  acquaintance 
with  the  principal  operators,  enables  us  to  give  our  customers  valuable 
information  regarding  the  most  desirable  stocks  to  operate  in,  and  the 
method  most  likely  to  be  successful. 

In  the  buying  or  selling  of  stocks  and  Privileges,  w^e  do  a strictly 
commission  business,  consequently  are  entirely  disinterested  when  we 
advise  our  customers  of  the  probable  course  of  the  market,  and  the 
]»roper  time  to  buy  or  sell  in  order  to  secure  the  largest  profit.  Much 
of  our  well-deserved  popularity,  and  the  rapid  increase  of  our  business, 
may  be  attributed  to  the  sound  and  honest  advice  which  w’e  have  al- 
w^ays  given  our  customers. 

All  orders  by  mail  or  telegraph  will  receive  prompt  attention. 
Money  can  be  remitted  by  draft,  money  order,  express  or  registered 
letter  with  perfect  safety  and  at  our  risk. 


